Defense and Income for an Uncertain Market
The market is always uncertain. No one ever really knows in which direction the next 5% or 10% move will be. But this is a much higher level of uncertainty than usual.
The good year so far has been a surprise. Most pundits were forecasting more gloom and doom at the beginning of the year. But the S&P 500 is up 15% YTD. It rallied on the promise of a soft land and then got a further boost as artificial intelligence spending promises to be a strong growth catalyst for the market’s largest sector for years to come.
But the rally has sputtered over the last six weeks. The S&P 500 is still hanging tough near the higher level and there hasn’t been a real selloff. But stocks have stopped going higher. It could be a healthy consolidation or a portent of things to come.
There really haven’t been ominous developments in stock prices in general. The news is still good. Inflation is falling. The Fed is almost done hiking. And there is no recession in sight. But there are some warning signs. Oil prices are on the rise. That could reignite inflation and make the Fed turn hawkish again. Plus, interest rates are near a 15-year high and showing no signs of falling.
High interest rates typically take a while to filter through the economy. It could be that the recession that is being dismissed by investors could be just a little further down the road. But the economy almost always proves to be more resilient than people think.
Under the circumstances, it makes sense to buy the beaten down defensive stocks. NextEra Energy (XEL), Xcel Energy (XEL), and Realty Income (O) all have long track records of market-beating performance and are selling near 52-lows, and in some cases multi-year lows. It’s still the throes of a bear market and the dark days of last October for those stocks. It is likely that prices should be higher in the next several quarters in a good market or a bad market.
It also makes sense to use recent strong performance to generate strong call premiums and a high income while the getting is good.
Past Month Activity
August 22
Purchased Xcel Energy Inc. (XEL) - $57.95
Sell HES October 20 $155 calls at $9.00 or better
August 29
Sold Global Ship Leasing (GSL) - $19.11
September 8
SOLD HES October 20 $155 calls at $9.00
SOLD INTC October 20 $35 calls at $3.76
September 15
OKE Sep 15 $65 calls at $3.20 – Expired
ONEOK Inc. stock (OKE) – Called
Portfolio Recap
AbbVie Inc. (ABBV)
Yield: 3.9%
The cutting-edge biopharmaceutical company stock is having a crummy year so far. But it has been a lot better over the last two months when it has been up over 13%. It is struggling with shrinking revenues because of the loss of U.S. patent protection for its blockbuster Humira drug. But the company has the pipeline to overcome in the not-too-distant future. AbbVie reported earnings that beat on both earnings and revenue and raised guidance for the year. The report emboldens the notion that the revenue drop from the Humira patent expiration will be temporary, and AbbVie will turn the corner sooner than expected. BUY
Digital Realty Trust (DLR)
Yield: 3.8%
This data center REIT has pulled back a little so far this month. But it is still in a sharp uptrend that began in May when it improved its finances and secured the dividend by selling assets. The market may not have priced in the additional growth catalyst Digital is likely to get from significantly increasing artificial intelligence spending. We’ll see if this recent uptrend still has legs. But even if the stock pauses, the longer-term trajectory should be strong. BUY
Hess Corporation (HES)
Yield: 1.1%
The energy exploration and production company stock has been bouncing around after hitting a new 52-week high last week. But earnings are highly levered to energy prices and crude oil prices keep climbing with no signs of stopping. West Texas Intermediate (WTI), the U.S. benchmark, hit $92 per barrel on Monday, the highest level since last November. That’s the main catalyst. Crude prices have been rising sharply higher since the end of May, and HES is up 34% since late June and 15% since late August. BUY
Intel Corp, (INTC)
Yield: 1.3%
This former long-time loser has been hot stuff lately. INTC is now up over 45% YTD. The stock is higher recently because the company raised third-quarter earnings guidance and the company received a prepayment from a “large unnamed customer” to secure capacity at its foundry for producing semiconductors. It demonstrates the tangible viability of the company’s foundry plans and makes success and higher revenues for the business likely to come sooner. INTC is being increasingly seen as a cheap stock with a bright future. BUY
NextEra Energy, Inc. (NEE)
Yield: 2.7%
The weakness might be ending as NEE has made a move off the bottom. This stock is still wallowing near a multi-year low, but it has historically been a superstar performer. NEE moved above the low last week and may be finally perking investor interest. The utility grew earnings 8.6% in the second quarter and 11% in the first half versus the same periods last year. It also has predictably solid earnings going forward because of a considerable project backlog. It’s a great stock that is just out of favor right now and selling near a multi-year low. BUY
Realty Income Corp. (O)
Yield: 5.7%
The legendary, defensive income stock is in the same boat as NEE right now. Defensive stocks have been shunned by the market. Even though operational performance has been sound as earnings were solid with a stellar 99% occupancy rate for its properties and an additional $3.1 billion invested in the quarter in 710 properties, O is wallowing near the 52-week low and currently yields 5.7%. This is now a very cheap and high-yielding stock with an excellent historical track record in a very uncertain market and economy. BUY
Qualcomm Corp. (QCOM)
Yield: 2.8%
The chipmaker stock continues to stink up the place. It has returned just 5% YTD while the technology sector is up almost 40% over the same period. The sector is being driven by stocks with exposure to AI that are benefitting right now. It’s a little soon for Qualcomm. The company is highly dependent on smartphones. And sales have been falling as the 5G cycle comes to an end and the global economy is sputtering. But smartphone sales may have bottomed, and QCOM could benefit mightily and move fast when things turn around. BUY
The Williams Companies, Inc. (WMB)
Yield: 5.2%
The midstream energy company stock moved sharply higher in the summer until leveling off around the middle of August. Perhaps the recent strength in the more commodity price-sensitive energy stocks can reignite further upside from here. Earnings were solid and recent expansion and acquisition activity bodes well for growth in 2023 and 2024 beyond what was expected. BUY
Xcel Energy Inc. (XEL)
Yield: 3.6%
This clean energy utility hasn’t fared any better than NEE in a very tough market for utilities. XEL had been trending lower since the beginning of April and hit a new 52-week low at the beginning of the month. But XEL has moved sharply off the low in the past couple of weeks. This is one of the best utility stocks to own and the dark days may be turning around. XEL is still selling near the lowest valuations in years in an expensive market and ahead of a likely slowing economy. BUY
Existing Call Trades
OKE Sep 15 $65 calls at $3.20 - Expired
Call premium: $3.20
Dividends: $1.91
Appreciation: $4.02 ($65 strike price minus $60.98 purchase price)
Total: $9.13 (total return of 15% in 6 months, or 19.4% if you sold the earlier call for $2.70)
The stock was right near the strike price a week ago. But it had a big week and closed nearly $3 per share higher on options expiration and the shares were called. It provided a great income and total return in a highly uncertain market. If there are good days ahead for midstream energy companies, we still have Williams Companies (WMB).
Sell HES October 20 $155 calls at $9.00 or better
The stock rallied last week and then pulled back at the end of the week. The calls are currently trading above $10 and are worth selling at that price if you haven’t done so already. Much will depend on the direction of oil prices over the next month to determine if these shares are called. The market looks wobbly, and it makes sense to lock in a high income and possible total return after these shares rallied near the 52-week high.
Sell INTC October 20 $35 calls at $3.50 or better
These shares had a big rally to a new 52-week high when the calls were sold. INTC tends to pull back after such rallies, and it makes sense to lock in the high income in an uncertain market. Calls are still selling above the targeted price and are still worth selling if you haven’t done so already.
Sell DLR October 20 $130 calls at $6.00 - Pending
These calls have not hit the target price since the “Trade Alert” two weeks ago. The stock has floundered, and these calls are selling below $5 per call to start the week. As we’ve seen with the two calls above, patience can pay off and we will leave that $6 target price for now.
CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $113.14 | $130.00 | 2.83% | -11.26% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $37.88 | $35.00 | 1.29% | -1.56% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $34.34 | $38.00 | 5.21% | 3.43% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $68.64 | $85.00 | 2.72% | -10.62% |
| Hess Corporation | HES | 6/6/23 | $132.25 | $160.35 | $140.00 | 1.09% | 21.98% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $54.10 | $62.00 | 5.68% | -8.94% |
| Digital Realty Trust | DLR | 7/18/23 | $117.31 | $128.75 | $125.00 | 3.79% | 10.79% |
| AbbVie Inc. | ABBV | 7/25/23 | $141.63 | $152.12 | $150.00 | 3.89% | 7.41% |
| Xcel Energy Inc. | XEL | 8/22/23 | $57.95 | $57.97 | $65.00 | 3.59% | 0.92% |
Existing Call Trades | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| DLR $130 Oct 20th call | DLR231020C00130000 | Sell Pending | $2.95 | $6.00 | |||
| INTC $35 Oct 20th call | INTC231020C00035000 | Sell | 9/8/23 | $3.78 | $3.55 | $3.00 | 9.41% |
| HES $155 Oct 20th call | HES231020C00155000 | Sell | 9/8/23 | $9.00 | $10.55 | $9.00 | 6.81% |
| as of close on 9/15/2023 | |||||||
SOLD STOCKS | |||||||
| Security | Ticker Symbol | Action | Entry Date | Entry Price | Sale Date | Sale Price | Total Return |
| Innovative Industrial Props. | IIPR | Called | 6/2/20 | $87.82 | 9/18/20 | $100.00 | 15.08% |
| Qualcomm | QCOM | Called | 6/24/20 | $89.14 | 9/18/20 | $95.00 | 7.30% |
| U.S. Bancorp | USB | Called | 7/22/20 | $36.26 | 9/18/20 | $38 | 3.42% |
| Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | $41.92 | 10/16/20 | $45 | 8.49% |
| Starbucks Corp. | SBUX | Called | 8/26/20 | $82.41 | 10/16/20 | $88 | 6.18% |
| Visa Corporation | V | Called | 9/22/20 | $200.56 | 11/20/20 | $200 | 0.00% |
| AbbVie Inc. | ABBV | Called | 6/2/20 | $91.04 | 12/31/20 | $100 | 12.43% |
| Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | $18.14 | 1/15/21 | $20 | 15.16% |
| Altria Group | MO | Called | 6/2/20 | $39.66 | 1/15/21 | $40 | 7.31% |
| U.S. Bancorp | USB | Called | 11/25/20 | $44.68 | 1/15/21 | $45 | 1.66% |
| B&G Foods Inc, | BGS | Called | 10/28/20 | $26.79 | 2/19/21 | $28 | 4.42% |
| Valero Energy Inc. | VLO | Called | 8/26/20 | $53.70 | 3/26/21 | $60 | 11.73% |
| Chevron Corp. | CVX | Called | 12/23/20 | $85.69 | 4/1/21 | $96 | 12.95% |
| KKR & Co. | KKR | Called | 3/24/21 | $47.98 | 6/18/21 | $55 | 14.92% |
| Digital Realty Trust | DLR | Called | 1/27/21 | $149.17 | 7/16/21 | $155 | 5.50% |
| NextEra Energy, Inc. | NEE | Called | 2/24/21 | $73.76 | 9/17/21 | $80 | 10.00% |
| Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | $50.63 | 10/15/21 | $55 | 11.65% |
| AGNC Investment Corp | AGNC | Sold | 1/13/21 | $15.52 | 1/19/22 | $15 | 5.92% |
| ONEOK, Inc. | OKE | Called | 5/26/21 | $52.51 | 2/18/22 | $60 | 19.62% |
| KKR & Co. | KKR | Sold | 8/25/21 | $64.52 | 2/23/22 | $58 | -9.73% |
| Valero Energy Inc. | VLO | Called | 11/17/21 | $73.45 | 2/25/22 | $83 | 15.53% |
| U.S Bancorp | USB | Sold | 3/24/21 | $53.47 | 4/13/22 | $51 | -1.59% |
| Enterprise Product Ptnrs | EPD | Called | 3/17/21 | $23.21 | 4/14/22 | $24 | 11.25% |
| FS KKR Capital Corp. | FSK | Called | 10/27/21 | $22.01 | 4/14/22 | $23 | 13.58% |
| Xcel Energy Inc. | XEL | Called | 10/12/21 | $63.00 | 5/20/22 | $70 | 12.66% |
| Innovative Industrial Props. | IIPR | Sold | 3/23/22 | $196.31 | 7/20/22 | $93 | -51.23% |
| One Liberty Properties | OLP | Sold | 7/28/21 | $30.37 | 8/24/22 | $25 | -12.94% |
| ONEOK, Inc. | OKE | Called | 5/25/22 | $65.14 | 1/20/23 | $65 | 2.66% |
| Xcel Energy, Inc. | XEL | Called | 10/26/22 | $62.57 | 1/20/23 | $65 | 4.67% |
| Realty Income Corp. | O | Called | 9/28/22 | $60.37 | 2/17/23 | $63 | 5.41% |
| Medical Properties Trust | MPW | Sold | 1/24/23 | $13.22 | 3/21/23 | $8 | -38.00% |
| Brookfield Infrastructure Cp. | BIPC | Called | 11/9/22 | $42.43 | 7/21/23 | $45 | 8.72% |
| Star Bulk Carriers Corp. | SBLK | Sold | 6/1/22 | $33.30 | 8/8/23 | $18 | -31.38% |
| Visa Inc. | V | Called | 12/22/21 | $217.16 | 8/18/23 | $235 | 9.16% |
| Global Ship Lease, Inc. | GSL | Sold | 2/23/22 | $24.96 | 8/29/23 | $19 | -13.82% |
| ONEOK, Inc. | OKE | Called | 3/28/23 | $60.98 | 9/15/23 | $65 | 9.72% |
EXPIRED OPTIONS | |||||||
| Security | In/out money | Sell Date | Sell Price | Exp. Date | $ return | Total % Return | |
| IIPR Jul 17 $95 call | out-of money | 6/3/20 | $3.00 | 7/17/20 | $3.00 | 3.40% | |
| MO Jul 31 $42 call | out-of-money | 6/17/20 | $1.60 | 7/31/20 | $1.60 | 4.03% | |
| ABBV Sep 18 $100 call | out-of-money | 7/15/20 | $4.60 | 9/18/20 | $4.60 | 5.05% | |
| IIPR Sep 18 $100 call | in-the-money | 7/22/20 | $5.00 | 9/18/20 | $5.00 | 5.69% | |
| QCOM Sep 18 $95 call | in-the-money | 6/24/20 | $4.30 | 9/18/20 | $4.30 | 4.82% | |
| USB Sep 18 $37.50 call | in-the-money | 7/22/20 | $2.00 | 9/18/20 | $2.00 | 5.52% | |
| BIP Oct 16 $45 call | in-the-money | 9/2/20 | $1.95 | 10/16/20 | $1.95 | 4.65% | |
| SBUX Oct 16 $87.50 call | in-the-money | 10/16/20 | $3.30 | 10/16/20 | $3.30 | 4.00% | |
| V Nov 20 $200 call | in-the-money | 9/22/20 | $10.00 | 11/20/20 | $10.00 | 4.99% | |
| ABBV Dec 31 $100 call | in-the-money | 11/18/20 | $3.30 | 12/31/20 | $3.30 | 3.62% | |
| EPD Jan 15 $20 call | in-the-money | 11/23/20 | $0.80 | 1/15/21 | $0.80 | 4.41% | |
| MO Jan 15 $40 call | in-the-money | 11/25/20 | $1.90 | 1/15/21 | $1.90 | 4.79% | |
| USB Jan 15 $45 call | in-the-money | 11/25/20 | $2.00 | 1/15/21 | $2.00 | 4.48% | |
| BGS Feb 19 $27.50 call | in-the-money | 12/11/20 | $2.40 | 2/19/21 | $2.40 | 8.96% | |
| VLO Mar 26 $60 call | in-the-money | 2/10/21 | $6.50 | 3/26/21 | $6.50 | 12.10% | |
| CVX Apr 1 $95.50 call | in-the-money | 2/19/21 | $4.30 | 4/1/21 | $4.30 | 5.02% | |
| AGNC Jun 18 $17 call | out-of-money | 4/13/21 | $0.50 | 6/18/21 | $0.50 | 3.21% | |
| KKR Jun 18 $55 call | in-the-money | 4/28/21 | $3.00 | 6/18/21 | $3.00 | 6.25% | |
| USB Jun 16 $57.50 call | out-of-money | 4/28/21 | $2.80 | 6/18/21 | $2.80 | 5.24% | |
| DLR Jul 16 $155 call | in-the-money | 6/16/21 | $8.00 | 7/16/21 | $8.00 | 5.36% | |
| AGNC Aug 20 $17 call | out-of-money | 6/23/21 | $0.50 | 8/20/21 | $0.50 | 3.00% | |
| OKE Aug 20 $57.50 call | out-of-money | 6/23/21 | $3.50 | 8/20/21 | $3.50 | 6.67% | |
| NEE Sep 17 $80 call | in-the-money | 8/11/21 | $3.50 | 9/17/21 | $3.50 | 4.75% | |
| BIP Oct 15 $55 call | in-the-money | 9./01/2021 | $2.00 | 10/15/21 | $2.00 | 3.95% | |
| USB Nov 19 $60 call | out-of-money | 9/24/21 | $2.30 | 11/19/21 | $2.30 | 4.30% | |
| OKE Nov 26 $65 call | out-of-money | 10/20/21 | $2.25 | 11/26/21 | $2.25 | 4.28% | |
| KKR Dec 17 $75 call | out-of-money | 10/26/21 | $3.50 | 12/17/21 | $3.50 | 5.42% | |
| QCOM Jan 21 $185 Call | out-of-money | 11/30/21 | $9.65 | 1/21/22 | $9.65 | 7.17% | |
| OLP Feb 18 $35 Call | out-of-money | 11/19/21 | $1.50 | 2/18/22 | $1.50 | 4.94% | |
| OKE Feb 18 $60 Call | in-the-money | 1/5/22 | $2.75 | 2/18/22 | $2.75 | 5.24% | |
| USB Feb 25 $61 call | out-of-money | 1/13/22 | $2.50 | 2/25/22 | $2.50 | 4.68% | |
| VLO Feb 25 $83 call | in-the-money | 1/18/22 | $4.20 | 2/25/22 | $4.20 | 6.13% | |
| EPD Apr 14th $24 call | in-the-money | 3/2/22 | $1.25 | 4/14/22 | $1.25 | 5.69% | |
| FSK Apr 14th $22.50 call | in-the-money | 3/10/22 | $0.90 | 4/14/22 | $0.90 | 4.09% | |
| XEL May 20th $70 call | in-the-money | 3/30/22 | $3.00 | 5/20/22 | $3.00 | 4.76% | |
| SBLK July 15th $134 call | out-of-money | 6/1/22 | $1.60 | 7/15/22 | $1.60 | 4.80% | |
| OKE Oct 21st $65 call | out-of-money | 8/24/22 | $3.40 | 10/21/22 | $3.40 | 5.22% | |
| OKE Jan 20th $65 call | In-the-money | 11/25/22 | $3.70 | 1/20/23 | $3.70 | 5.68% | |
| XEL Jan 20th $65 call | in-the-money | 11/25/22 | $5.00 | 1/20/23 | $5.00 | 7.99% | |
| O Feb 17th $62.50 call | in-the-money | 12/28/22 | $3.00 | 2/17/23 | $3.00 | 4.97% | |
| QCOM Sep 16th $145 call | out-of-money | 7/20/22 | $11.75 | 9/16/22 | 11.75 | 8.73% | |
| V Mar 17th $220 call | out-of-money | 1/24/23 | $12.00 | 3/17/23 | $12.00 | 5.51% | |
| OKE May 19th $65 call | out-of-money | 4/11/23 | $2.70 | 5/19/23 | $2.70 | 4.43% | |
| V Jun 2 $230 call | out-of-money | 4/21/23 | $10.50 | 6/2/23 | 10.5 | 4.82% | |
| BIPC $45 July 21st call | in-the-money | 5/23/23 | $3.25 | 7/21/23 | $3.25 | 7.66% | |
| V $235 Aug 18th call | in-the-money | 7/11/23 | $9.00 | 8/18/23 | $9.00 | 4.13% | |
| GSL $20 Aug 18th call | out-of-money | 7/11/23 | $1.25 | 8/18/23 | 1.25 | 5.00% | |
| OKE $65 Sep 15 call | in-the-money | 9/15/23 | $3.20 | 7/25/23 | 3.2 | 4.92% | |